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North Carolina attorney pleads guilty for $18M mortgage fraud scheme

Allegedly defrauded BB&T and First Citizens Bank

A North Carolina attorney and real estate developer is facing a maximum sentence of 30 years after pleading guilty to bank fraud charges relating to a mortgage fraud scheme that is anticipated to cost various lenders, title insurers and investors at least $18 million.

According to the U.S. Attorney’s Office for the Eastern District of North Carolina, Joseph Kinlaw, 63, pled guilty this week to charges stemming from a scheme that saw Kinlaw allegedly falsified property information in order to obtain several loans from BB&T and First Citizens Bank under the auspices of developing residential real estate near Camp Lejeune, a Marine Corps base in North Carolina.

In a release, the U.S. Attorney’s Office stated that Kinlaw was a licensed North Carolina attorney who operated various alleged real estate investment and development entities on behalf of investors.

According to the release, Kinlaw used those entities to obtain fraudulent loans from BB&T and First Citizens Bank, between January 2011 and April 2013.

The U.S. Attorney’s Office stated that Kinlaw allegedly used the real estate development entities to defraud BB&T and First Citizens Bank by falsifying the legal descriptions of the loan collateral, and by falsifying releases of the collateral. 

According to the U.S. Attorney’s Office, Kinlaw was then able to use the collateral for other real estate investment activities and loans. Also, by fraudulently releasing the banks’ collateral before the banks’ loans had been satisfied, Kinlaw was able to convey the collateral to third parties for value and continue the scheme.

In order to keep the scheme alive and to keep from being discovered, Kinlaw allegedly used outside funds – money that was unrelated to the real estate development activity that was the subject of each loan – to make ongoing loan interest payments to BB&T and First Citizens Bank. 

In some cases, Kinlaw allegedly used loan proceeds from one transaction to make loan interest payments on another transaction. And in other instances, Kinlaw fraudulently extracted funds from other investors and their business interests to make payments on the loans, the U.S. Attorney’s Office said.

Eventually, banks stopped loaning money to Kinlaw, his related companies and investors.  As a result of that, the existing loans went into default. 

And because Kinlaw substituted false legal descriptions of bank collateral, and fraudulently conveyed bank collateral, BB&T and First Citizens Bank were unable to recover their loan losses in foreclosure, the U.S. Attorney’s Office stated. 

Additionally, various title insurance companies and investors also lost “substantial funds” because of the scheme, the U.S. Attorney’s Office said.

Overall, the full loss suffered by the banks, investors, title companies and other companies is still under investigation, but the losses are presently anticipated to exceed $18 million, the U.S. Attorney’s Office said.

For his crimes, Kinlaw faces up to 30 years in prison and 5 years of supervised release. He also faces a fine of up to $1 million, and an order of restitution to victims.

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